New Atlantis Contributing Editor James C. Capretta is an expert on health care and entitlement policy, with years of experience in both the executive and legislative branches of government. E-mail: jcapretta@eppc.org.READ MORE

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Thursday, May 21, 2009

An Ugly Menu

It’s been apparent for some time that the biggest obstacle in the way of Congressional passage of the kind of sweeping health-care plan most Democrats favor is paying for it. As recently as Sunday, OMB director Peter Orszag again pledged that whatever bill emerges won’t add to the federal budget deficit over the next decade.

That means Congress is going to have to raise taxes or cut spending because, despite all of the talk of “bending the cost curve,” there is no plan to do any such thing.

And that’s evident in the Obama administration’s own numbers.

Their 2010 budget submission to Congress doesn’t show any savings in governmental health-care costs from health information technology (HIT), comparative-effectiveness research, prevention, or any of the other “cost-control lite” ideas promoted by Obama aides. Meanwhile, the Medicare Trustees issued their annual update on the program’s finances last week, and it shows the cost curve rising as it always has — rapidly. And that’s after Congress has already spent billions to computerize medical records and conduct research into what someone views as “cost-effective” care. If these were the magic bullets, why didn’t the Medicare Trustees “bend” the cost curve?

No, the Democrats are stuck. They have promised to extend insurance subsidies to tens of millions of households, which will cost at least $1 trillion over the next decade. The only way to pay for such an expensive new entitlement will be to raise taxes or cut spending.

Which is why, on Monday, the Senate Finance Committee’s chairman, Max Baucus, released a white paper with a menu of tax and budget saving ideas.

It’s not a pretty list. There’s the possibility of large tax hikes on beer and soft drinks — just as Americans are heading out to ballparks and lake houses. And then there’s the arbitrary fee cuts for hospitals and doctors, which will only shift more costs onto private payers. This is not change. It’s simply a rounding up of the usual budget-cutting suspects. But, this time, they would pay for the largest expansion of government in history, not reduce the deficit.

For weeks, Senator Baucus has also hinted that he would like to raise more revenue by changing the tax treatment of employer-paid health insurance. Of course, this is the one idea with the potential to appeal to some Republicans because they rightly view the status quo as unacceptable. Today, there is no limit on the amount an employer can pay for job-based insurance, but individuals buying coverage on their own don’t get a similar break.

Conservatives shouldn’t get their hopes up that a sensible reform of the tax treatment of insurance is possible this year. The Baucus white paper does in fact mention, as one possibility, putting a broadly applicable cap on the amount that could be excluded from taxes each year. But the paper also mentions that a cap might be imposed just on upper-income households (such as couples with incomes exceeding $400,000) and that union-negotiated plans might be exempt altogether for the duration of a collectively-bargained agreement. These “details” would render the whole idea useless. The loopholes would be expanded and extended. Much less revenue would be raised. And, most importantly, nothing would change in the health sector as too few consumers would feel the pinch from insurance premiums exceeding the cap.

Democrats in Congress are bravely marching ahead with their plans to pass a $1 trillion-plus health-care plan. To succeed, they have to get their rank and file members to support massive tax hikes and arbitrary price controls in Medicare. If nothing else, the latest white paper from Senator Baucus should makes it clear that Republicans have nothing to gain by helping them.